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Did Hedge Funds Make The Right Call On Medpace Holdings, Inc. (MEDP)?

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Medpace Holdings, Inc. (NASDAQ:MEDP) at the end of the first quarter and determine whether the smart money was really smart about this stock.

Medpace Holdings, Inc. (NASDAQ:MEDP) shares haven’t seen a lot of action during the first quarter. Overall, hedge fund sentiment was unchanged. The stock was in 17 hedge funds’ portfolios at the end of March. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Ultrapar Participacoes SA (NYSE:UGP), Braskem SA (NYSE:BAK), and NuVasive, Inc. (NASDAQ:NUVA) to gather more data points. Our calculations also showed that MEDP isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 58 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

Noam Gottesman GLG Partners

Noam Gottesman of GLG Partners

At Insider Monkey we scour multiple sources to uncover the next great investment idea. With Federal Reserve creating trillions of dollars out of thin air, we believe gold prices will keep increasing. So, we are checking out gold stocks like this small gold mining company. We go through lists like the 10 most profitable companies in America to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. With all of this in mind let’s go over the new hedge fund action surrounding Medpace Holdings, Inc. (NASDAQ:MEDP).

Hedge fund activity in Medpace Holdings, Inc. (NASDAQ:MEDP)

Heading into the second quarter of 2020, a total of 17 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in MEDP over the last 18 quarters. With hedgies’ capital changing hands, there exists a few key hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).

More specifically, Renaissance Technologies was the largest shareholder of Medpace Holdings, Inc. (NASDAQ:MEDP), with a stake worth $60.1 million reported as of the end of September. Trailing Renaissance Technologies was Fisher Asset Management, which amassed a stake valued at $27.7 million. Arrowstreet Capital, D E Shaw, and GLG Partners were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Shanda Asset Management allocated the biggest weight to Medpace Holdings, Inc. (NASDAQ:MEDP), around 0.74% of its 13F portfolio. Prescott Group Capital Management is also relatively very bullish on the stock, setting aside 0.61 percent of its 13F equity portfolio to MEDP.

Judging by the fact that Medpace Holdings, Inc. (NASDAQ:MEDP) has experienced falling interest from the aggregate hedge fund industry, logic holds that there was a specific group of money managers who sold off their entire stakes by the end of the first quarter. It’s worth mentioning that Alec Litowitz and Ross Laser’s Magnetar Capital cut the biggest position of the 750 funds tracked by Insider Monkey, worth close to $0.9 million in stock, and Paul Marshall and Ian Wace’s Marshall Wace LLP was right behind this move, as the fund dumped about $0.6 million worth. These bearish behaviors are interesting, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Medpace Holdings, Inc. (NASDAQ:MEDP) but similarly valued. We will take a look at Ultrapar Participacoes SA (NYSE:UGP), Braskem SA (NYSE:BAK), NuVasive, Inc. (NASDAQ:NUVA), and VEON Ltd. (NASDAQ:VEON). This group of stocks’ market caps are closest to MEDP’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
UGP 5 25895 0
BAK 6 23630 1
NUVA 24 206412 -2
VEON 8 18862 -3
Average 10.75 68700 -1

View table here if you experience formatting issues.

As you can see these stocks had an average of 10.75 hedge funds with bullish positions and the average amount invested in these stocks was $69 million. That figure was $183 million in MEDP’s case. NuVasive, Inc. (NASDAQ:NUVA) is the most popular stock in this table. On the other hand Ultrapar Participacoes SA (NYSE:UGP) is the least popular one with only 5 bullish hedge fund positions. Medpace Holdings, Inc. (NASDAQ:MEDP) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 18.6% in 2020 through July 27th but still beat the market by 17.1 percentage points. Hedge funds were also right about betting on MEDP as the stock returned 53.1% since Q1 and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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Disclosure: None. This article was originally published at Insider Monkey.